Recent R&D changes introduced by HMRC could mean an effective reduction in the time limit for companies making claims for the tax relief.
Currently the deadline for making an R&D claim is in line with most Corporation Tax claims and elections, being two years from the end of the accounting period – which in most, but not all, cases is the date the company prepares its accounts to. For a company with a 31 December 2023 year end, they have until 31 December 2025 to submit their claim, and in the past many companies have submitted claims right up to the wire, with many R&D advisers being familiar with a New Year’s Eve submission.
There a several practical problems in preparing claims late in the day. Not least of all in asking the company’s technical team to remember, in detail, the projects they were involved in up to almost three years previously. At a more fundamental level, the aim of R&D tax relief is to encourage innovation in the UK – arguably, if a company doesn’t know the value of its claim until two years after the work has been undertaken, the link between the innovation and the resulting tax benefit is insufficient.
As part of the raft of changes currently impacting on the world of R&D, HMRC have taken action to tighten up on claims submitted towards the end of this two-year period. They’ve introduced a claim notification form, which is required for periods beginning on or after 1 April 2023. This is an online document which must be submitted within the claim notification period to pre-advise HMRC the company intends to claim R&D relief. The company must then make the claim within the two-year deadline.
In most cases, the claim notification period ends six months after the company’s year-end – so for a 31 December 2024 year end, the company must notify HMRC of its intention to claim R&D by 30 June 2025.
There is an exception to this – if a company has submitted an R&D claim in the three years running up to the end of the claim notification period (so 1 July 2022 to 30 June 2025 in our example) then there is no requirement to notify. However, claims made in amended returns will not qualify for this exemption.
There are also additional complexities for companies whose accounts are not drawn up for 12-month periods.
SO, WHERE DOES THIS LEAVE YOUR R&D CLAIM?
Companies need to consider R&D at an early stage. For companies who typically submit their R&D claims towards the end of the two-year period, and usually in amended returns, this is something which will require a significant shift in behaviour. For companies who make claims annually, and who prepare their claims swiftly following the end of the accounting period, this may be less of an issue. With significant amounts of money at stake, this is something that every claimant needs to be confident they have addressed.
Is the safest thing to do pre-notify for every year? The issue with this is that as part of the notification, HMRC require high level details of the activities undertaken to show the project meets the standard definition of R&D. As well as this being an additional administrative requirement to complete the form, they’ll need input from various different departments within the company. Along with the company’s R&D adviser.
We would encourage all claimants to work closely with their advisers to ensure the claim notification requirement is addressed. Here at CP Innovation, we have always aimed to help clients complete their R&D claims shortly after the end of their accounts year. We feel this has many benefits particularly in terms of obtaining the relevant technical information. For many of our clients this shouldn’t mean a behavioural change. Reach out if you would like to understand how these changes will impact on your future claims.
